Mark Oberholzer – Roundtable: How is the Southern California CRE development sector dealing with rising construction costs?

SoCal Real Estate

July 11, 2018

Just when you think development in Southern California couldn’t get more complicated, rising construction costs have come to the rescue. The unprecedented escalation of costs has become the new top agenda item in every development project meeting, replacing even regulatory approval time as the most pertinent issue in SoCal development.

For projects to move forward, there is a growing awareness that the right people with the right level of expertise need a seat at the table at the right time. At this moment, it’s critical that any development endeavor includes effective preconstruction services. Although preconstruction services can add cost to the “front end” of a project, there is no substitute for the specific costing guidance that keeps a project on track. I’m all for wishful thinking, but a dose of realistic budgeting will help make a project (and its proforma) real.

As an architect, I must mention how important it is to have the right architect to keep a project on track. Designers can’t control the cost of construction, but they can work to maximize the value of a budget. How can design create more value with less cost?

In addition to having the right expertise, it’s critical that the development team works as a team, in spirit as well as name. The best teams have talent, expertise, and ambition, but they also need an understanding that the intense pressure of cost escalation is a pressure that needs to be shared by all team members in order to keep costs under control.

Many of the specific cost-control strategies we’re seeing in the current market, such as prefabrication, modular construction, and project fast-tracking, are critically dependent on a talented team of experts that can function together at a high level. Cost escalation isn’t someone else’s problem — it’s currently the most important factor that warrants creative collaboration among all of us.